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Let the good times roll: US petrochemicals

Hydrocarbon Engineering,

The price of natural gas is driving a US petrochemical renaissance. Natural gas plays an important role as both the source of feedstock and manufacturing energy. It takes approximately 20 000 ft3 of ethane feedstock and the equivalent of another 26 000 ft3 of natural gas to make 1 t of ethylene.

Back in the early 2000s, the cost of natural gas began to climb as conventional sources dwindled; by 2007, it was over US$ 12/million Btu, too expensive for most plant operators to turn a profit. Petrochemical manufacturers began to decamp to regions where sources of cheap stranded gas were available.

Conditions changed dramatically when the shale gas revolution hit North America. The Texas Barnett shale was the first major source of unconventional gas, and now supplies around 5 billion ft3/d. According to the US Energy Information Administration (EIA), gas production from the Marcellus shale formation (spread across several states including West Virginia, Pennsylvania and Ohio), is expected to rise to 14.7 billion ft3/d.

The vast expansion of gas supply has led to a significant decline in prices. Since 2008, prices have fallen from over US$ 12/million Btu to under US$ 3 per million Btu in 2012, recovering to approximately US$ 4.50 by early 2014.

In addition, drillers are increasingly targeting the fluids rich portions of shale. The Eagle Ford shale, for instance, was originally a gas play, but quickly evolved into a fluids play; since 2010, oil, condensate and NGLs production from this one Texas formation has grown from virtually nothing to almost 1.4 million bpd.

Total NGL production (ethane, butane and propane combined), which stood at 2.2 million bpd in 2011, is expected to reach 3.34 million bpd in 2014. Of that, ethane forms approximately 1 million bpd production.

While petrochemical plants can be retooled to handle either naphtha or ethane, most jurisdictions do not have the supply and dedicated infrastructure found in the US Gulf Coast (USGC) to fractionate and deliver vast amounts of ethane.

Facilities in Asia and Europe rely on naphtha, but naphtha is almost four times as expensive a feedstock. Industry analysts note that a plant with a capacity of 1 billion lbs/y (450 000 tpy) saves approximately US$ 680 million/y by using ethane, instead of naphtha, as feedstock.


The petrochemicals sector in North America is not without its challenges. The US Environmental Protection Agency (EPA) has proposed uniform emissions standards for hazardous air pollutants at a wide range of industrial sites, from refineries and petrochemical factories to storage vessel and transfer facilities. While petrochemical operators are keen to reduce harmful emissions, the AFPM has noted that standards are now reaching levels where rising costs are meeting diminishing rates of returns in benefits.

There is also a growing public concern over hydraulic fracturing, one of the key technological advances that makes shale gas economically viable. During the process, several million ltrs of water are forced at high pressure down the well and into the shale to create a network of tiny fractures that allow the gas to escape. The water itself is often treated with proprietary chemicals in order to decrease the viscosity (and thus increase penetration) of the water.

Various jurisdictions are concerned that these chemicals, some of which are known carcinogens, could leak into adjacent groundwater aquifers and contaminate drinking supplies. Several states and municipalities have imposed moratoriums and bans; if too many regions follow suit, the shale gas revolution could be severely constrained, causing gas prices to rise.

Another of the critical challenges in developing Greenfield petrochemical facilities on such as massive scale is the need for skilled labour. As booms in other energy related plays (such as the Canadian Oilsands and the Bakken unconventional play in North Dakota) have shown, multi billion dollar projects place severe strain on the talent pool.

The future

In the near term, the petrochemical industry will benefit from depressed ethane commodity prices. The boom in both shale gas and liquids rich shale is filling the market to overflowing with NGLs. Simmons & Co. International, a consultancy, says that the increases in new gas production (a total of 8.8 billion ft3/d in the last two years alone), as well as increased transport and fractionation facilities, has resulted in unprecedented ethane, butane and propane supply.

As a result, ethane currently sits in an over supply market in the US, and the price has dropped from 77 cents/gal. (US$ 571/t) in 2011, to 25 cents/gal.(US$ 185.50/t). Production is approximately 1 million bpd, and growth is running well ahead of demand.

In the longer term, US manufacturers face the potential for a rise in the cost of natural gas. Not surprisingly, other sectors also wish to take advantage of low prices, and have been adopting natural gas in various ways in order to profit. Utilities, for instance, are switching from coal to natural gas.

Price is not the only factor; upfront capital costs for turbines are significantly lower, and the latter produce much less GHGs, NOx, SOx and other pollutants. The growing costs of environmental compliance weigh heavily in natural gas’s favour when priced out over several decades. Gas can also be economically converted to liquid fuels; at US$ 4.50/million BTU, it takes about US$ 29 of natural gas to make 1 bbl of liquid fuel.

The use of natural gas as a vehicle fuel is also being promoted. Only a small percentage of vehicles (mostly delivery, taxi and bus fleets), currently run on compressed natural gas. But Ford, Chrysler, Honda and other car manufacturers have been building consumer vehicles for several years, and most diesel and gasoline engines can be converted with kits. The US senate is currently reviewing the State Natural Gas Act of 2012, which calls for US$ 100 million in grants to build a refuelling infrastructure and bolster the existing US$ 7500 vehicle tax credit to US$ 10 000 through 2016.

Gas producers are also looking into tapping into higher cost international markets through LNG. Several consortia have advanced projects to liquefy stranded gas in northeast British Columbia and ship it from the deepwater Pacific port at Kitimat to Asia.

While all of the above factors have the ability to put upward pressure on North American gas prices, the continued expansion of unconventional gas supplies is expected to continue for several years to come, as current plays are fully exploited, and new plays in relatively untapped basins continue to add to the supply chain. And that means the good times will continue to roll for the US petrochemical sector.

Written by Gordon Gope.

Adapted for the web by Emma McAleavey. For the full article, see the July issue of Hydrocarbon Engineering.

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